10 November 2010

COAG - Quo Vadis?

We have previously indicated it is time to decide:

1. which level of government should have responsibility for particular public policy areas;

2. what taxation bases should be assigned to the states and territories; and

3. where it is appropriate for the Commonwealth to be the level of government determining policy outcomes but is an area where it has no clear constitutional capacity to act, whether it is appropriate to confer Commonwealth power either:

(a) indirectly, agreements made under section 96 of the Constitution; or

(b) a reference of power by the states to the Commonwealth or directly by the states or by constitutional amendment.

The political class really must come out one way or another and declare whether Australian States are either:

1. ‘incubators of innovation’ within a country where there is genuine ‘competitive federalism’ –where different jurisdictions will make different rules and regulations and have different levels of taxation, with each jurisdiction ultimately picking up what is ‘best practice’ or face the loss of people and investment; or

2. effectively English style County Councils providing a narrow range of services within an Australia with a single seamless economy with a centrally set of rules and taxation levels in force uniformly throughout the country.

The Senate has quietly formed a Select Committee on the Reform of the Australian Federation.

Only constitutional (and parliamentary) savants would have known that the Committee existed.

It would appear that some respondents are disposed towards something called a ‘Convention for the Federation’.

Others submissions are keen to ensure that the position of COAG within the federation is either formalised or, at the very least, clarified.

The Select Committee is currently to report by 17 November 2010.

In our view the work of:

(a) the Select Committee (and its submitters);

(b) the Henry Review on Taxation;

(c) the treasury heads report to be prepared for COAG; and

(d) a ‘Domesday Book’ which would look something like the List of Australian Government Bodies and Governance Relationships, and would assist in identifying what governments actually do and what duplications exist

would both form the basis of developing suitable terms of reference of a ‘Convention for the Federation’ as well as commence the conversation that would accompany the creation of such a body.

It will be interesting to see how reform of the federation will fare within Canberra’s ‘new political paradigm’.

The slow breakdown of COAG – Part 2

Gerry Gleeson formally ran the NSW Public Service.

He said in a recent speech:

Both parties, nationally, seem determined to diminish and erode the powers of the states.

State governments must accept that the Council of Australian Governments will play an increasingly important role in formulating national policies. NSW must not abdicate policy development. We must be leaders and not followers. NSW must be represented at COAG by highly talented officers with passion, purpose and policies to ensure the state gets a fair go.

Gleeson implicitly gives COAG the status of a parliament – something the political players have now tumbled to:

Critics of COAG have included Mr Barnett, who has said that COAG has become almost a new tier of government and lacks accountability and transparency. Mr Barnett has said that with 43 ministerial councils, it was too much....

A review of the COAG process is to be conducted by the heads of Australian treasuries.

The review will look at how well the interlocking COAG agreements are operating as well as whether there is a need for clearly specified responsibilities for governments as well as the development of sufficient performance benchmarks.

Unfortunately, one thing not reviewed is the overall capacity of the states and territories to fund any identified ‘clearly specified responsibilities’.

In that context it is interesting to see the emergence of the relationship between the payment of the proposed mineral resources rent tax (MRRT) and state based royalties as an issue.

According to the mining companies (BHP Billiton, Rio Tinto and Xstrata) a term of the document that allowed the ALP to say there was an ‘agreement’ about a mining tax before the election was a promise the Commonwealth would refund the value of state and territory royalties paid by the mining industry.

The Feds now claim that refunds will be paid on the basis of the relevant formula (or any announced variations) in force as at 2 May 2010 - the day the agreement was made was made.

This poses the question of what happens if a state increases a royalty amount.

The Sydney Morning Herald reports that the Government may withhold transfer payments to the States such as the GST if they effectively challenge the collection rate from the mining tax by increasing royalties.

We had anticipated this probable outcome:

The fact is the federal government requires a lot of money to fund the broad ‘social democratic project’ established by pl.51(xxiii) and (xxiiiA) of the Constitution –income transfer payments, health, hospitals and (undoubtedly in the immediate future) disability support and will need more money (and not less) as an increasing number of worthy needs are identified as requiring support in a country with an aging population and an atomising society.

A simple illustration: an portion of the proposed RRT is to help ‘build the roads, rail, ports, electricity and water supply, and other facilities needed to unlock Australia’s resource wealth’.Like housing, health and education, these are subject matters formally considered to be largely state responsibilities increasingly falling under Commonwealth control.

The Feds will increasingly need tax revenues to fund their projects in these areas on their terms. Then there is the ‘seamless economy’ and the wish to remove duplication.

Currently, the Government proposes that miners pay both royalties and the RRT, with royalty payments a claimable tax rebate. But it won’t be too long before calls are made that this is an inefficient way of doing things – only one tax should be levied (in this case) on the extraction of minerals. There isn’t much doubt which tax will go. (our emphasis)

As The Australian reported, the WA Premier has made his views clear:

Referring to the Rudd government's initial resource super-profits tax, Barnett says: ‘With 65 per cent of this revenue coming from Western Australia, it was seen as an attack on the mining industry and on our resource income base. People talk about these resources belonging to all Australians. Well, constitutionally, they don't. They belong to the people of each state.

In its 28 October letter to the Policy Transition Group (the Committee assisting the Government in implementing the MRRT) the Chamber of Minerals and Energy of Western Australia’s (CME) makes some pretty obvious points:

In relation to state royalties, CME has always maintained a strong preference for retention of the current state regime, administered by the state government and with revenues flowing to the state. The state has prime responsibility for resource project approvals and the provision of non-privately owned infrastructure. As such, it is imperative the state government maintains and receives a dividend for WA resources.

It is now reported in The Age that the Treasury ‘is considering using its tax power in the constitution to 'pursue unilateral legislation’ for poker machine reforms.’

Whatever the merits of having the Commonwealth regulate gambling, the decision again attacks the capacity of states and territories to make spending decisions confident that there is a stream of ‘own source’ income available to support the decision.

Whilst it may not be immediately apparent to the players, the issues of who does what in the Australian federation and how states should receive the funds to discharge ‘allocated responsibilities’ are now coming to a head.

The Slow Breakdown of COAG - Part 1

The slow breakdown of COAG – Part 1

NSW Labor leader Kristina Keneally is leading the most unpopular Labor Government in the history of Newspoll.

To stay relevant, she is playing to her core constituencies.

One of the ways she is trying to ‘save the furniture’ is to renege on promises made to accept changes to the NSW occupational health and safety (OHS) issue to permit OHS to be harmonised around Australia.

This is an interesting development. As we said at the time the OHS intergovernmental agreement was made:

As part of the (Workplace Relations Ministerial Council) decision, unions will not be able to commence prosecutions, and prosecutors must prove OHS offences beyond reasonable doubt – the Council expressly voted down the current position in NSW – making union stakeholders quite cross.

WA declined to sign the communiqué as they were unhappy about the use of conciliation to resolve OHS issues, the low standard of proof for workplace discrimination claims, union right of entry to workplaces and the level of gaol terms. It remains a question how much of the national model each jurisdiction takes into its own law, although it is noted that uniform OHS laws are one of those things for which states and territories receive ‘reward payments’ under the National Partnership to Deliver a Seamless Economy

It is disingenuous for Keneally to argue her position on not agreeing to harmonised OHS provisions is the same as WA. At least WA refused to sign the agreement. NSW folded.

As the Sydney Morning Herald said on 14 May 2009:

(Then Minister) Mr Tripodi said NSW was committed to harmonisation of legislation, and he was disappointed that NSW laws allowing unions to prosecute for safety breaches were not adopted.

As one would nearly expect the Prime Minister has threatened NSW its ‘reward payments', with the Prime Minister reported as saying that 'the Council of Australian Governments must work on the basis that jurisdictions honour their commitments.'

This yet again raises the issue of the proper function of COAG within the Australian federation.

This will be discussed in the next couple of articles.

What Does the 'Labour Movement' Actually Mean?

NSW Left winger Senator Doug Cameron made an interesting intervention when he claimed being in the ALP under the final months of Kevin Rudd was like having a ‘political lobotomy’, with MHRs and Senators allegedly acting like ‘zombie MPs’.

Like Greg Combet, who has called for Labor to ‘redefine itself as progressive with the core value of equity, social justice and compassion’ Cameron is concerned the party is losing ground to the Greens.

He called for the Left in the party to be able to ‘speak effectively to progressive people who are looking for a vision and a strong strategy for progressive policies.’

However, as reported by the Sydney Morning Herald:

New party rules introduced by Mr Rudd, which were designed to present a united front by stopping MPs from speaking against a Caucus position, worked in the government's favour early on but ended up costing the party.

‘There are many people within the Labor Party holding strong progressive points of view and progressive voters don't know this,’ he said.

‘The pledge system and the party system just puts a blanket over every different point of view.‘Everything is focused on the spin and on the take of the day and long
term strategic policy decisions suffer because of that.’

Prime Minister Julia Gillard said in response to the Senator's comments that she made it clear to Caucus she wanted more debate and new ideas about policy direction. But the pledge system would stay, Ms Gillard said.

One of the reasons that Australian politics is the most rigid in the world is the because of ‘the pledge’: the promise that ALP members make to uphold the party platform and to follow decisions made by Caucus.It is this practice that has provided Australia with the most rigid party system in the Westminster world.

This may have been appropriate once upon a time where one centre left party opposed a single coalition of the centre right, but may be less appropriate now.

As we have previously observed:

The ALP voting coalition has hitherto consisted of self identifying members of the labour movement, people with English as a second language, income transfer recipients, public sector workers, the arts sector and high income professionals who are both secularist and internationalist in orientation.However, the Greens message - guided by the so-called ‘four pillars’ (ecological sustainability, social equality and economic justice, grassroots democracy and peace and disarmament and nonviolence) is apparently more amenable to a ‘progressive’ middle class constituency than one put out by a regimented party with 50% union control designed to represent the ‘labour movement’ and achieving social justice primarily through the improvement of working conditions and changes to the wages and salaries system.

Despite winning the federal election, the ALP looks like they are going through the introspection usually undertaken by the losing side.

Eyes now turn to Victoria, where the Greens could get up to 19% of the vote and a number of seats in the Legislative Assembly – possibly even holding the balance of power.

This will mean the ‘quo vadis’ question being asked with increased vigour.

As Labor voters from the ‘moral middle class’ feel able to vote Green the traditional ALP ‘upside down coalition’ of social progressives and the traditional ‘working class’ is now under great strain.

Rather than claiming to be in favour of ‘equity, social justice and compassion’ (which sounds as meaningful as being in favour of ‘truth, justice and the American way’) Labor will need to redefine what ‘the labour movement’ – the concept that permitted the representatives of labour and those who wished to express solidarity with the working class to operate within one political party - means in the 21st century.

This would be advanced by open public discussion of policy and political options – the idea of smothering debate may not be helpful.

Antony Green has observed that the NSW ALP now has the same voter share as the party had in 1904, with the current mob possibly being the last ‘in its own right’ Labor government in the state.

If the Party gets the redefinition of what the ‘labour movement’ means wrong, this could be their fate everywhere.